Business
Growing the government won’t help Canada’s economy
From the Fraser Institute
By Jake Fuss and Grady Munro and Alex Whalen
Empirical research suggests that economic growth is maximized when the size of government falls between 24 and 32 per cent of GDP. In other words, when governments spend in excess of this range, the economy will not grow as much as it would if government operated within that threshold
Canada is suffering from an economic growth crisis, and governments across the country should reassess their policies. Governments (particularly the federal government) have recently taken a more active role in the economy through increased spending and bureaucracy. However, policymakers must take a step back and recognize that growing government doesn’t lead to growth in the economy.
Canada’s economy has been stagnant for the last decade. From 2013 to 2022, per-person GDP (a broad measure of living standards) grew at its slowest pace since the 1930s, after accounting for inflation. And more recent data shows that in the fourth quarter of 2023, per-person GDP (inflation-adjusted) stood at $58,111—which is $51 per person lower than it was at the end of 2014. Simply put, Canadians have experienced a decade of dismal growth, and are now actually worse off than they were a decade ago.
During this time, many governments in Canada have adopted an approach of greater involvement in the economy and significantly higher spending. Take the federal government, for example.
Since 2014/15, the government has increased annual program spending (total spending minus debt interest) by roughly 75 per cent, from $256.3 billion to $448.2 billion in 2022/23. Moreover, the Trudeau government has recorded the five-highest years of federal spending in Canadian history, after accounting for population growth and inflation. Much of this spending has gone towards expanding Ottawa’s role in the economy through increased transfers, business subsidies or new programs such as $10-a-day daycare and national dental care.
Provincial governments in Quebec, Nova Scotia and British Columbia (to name a few) have also recently reached historical highs in per-person program spending (even after excluding COVID-related spending). Simply put, governments across the country have been increasing spending and becoming more involved in the economy.
One way to measure the size of government, that allows for the comparison of jurisdictions over time, is known as total consolidated government spending as a share of GDP. This measure includes all spending at the local, provincial and federal levels in a jurisdiction and compares that level to the size of the economy.
According to a recent study, in 2022 (the latest year of available data) the size of government in Canada was 40.5 per cent of GDP compared to 38.2 per cent in 2014.
Among the provinces, total government spending ranged from 26.8 per cent of GDP in Alberta to 63.0 per cent of GDP in Nova Scotia. Compared to 2014, the size of government grew in eight of 10 provinces—only Prince Edward Island and B.C. experienced declines in government spending as a share of the economy. It’s also important to note that this is simply government spending. The true size of government, when accounting for things like regulation, is even larger.
Growing government matters because it influences economic growth. When the size of government is below a certain level, it lacks the resources to deliver services such as policing, courts or national defence—which are essential to a functioning economy. On the other hand, when government is too big it engages in activities best left to the free market and effectively crowds-out private-sector activity that contributes to economic growth. Therefore, when a government is too small or too big, economic growth (and consequently living standards) suffer.
Empirical research suggests that economic growth is maximized when the size of government falls between 24 and 32 per cent of GDP. In other words, when governments spend in excess of this range, the economy will not grow as much as it would if government operated within that threshold—all else equal. Based on the numbers presented above, it’s clear the vast majority of governments in Canada are too big. For nine of 10 provinces and the federal government, their spending exceeded 32 per cent of GDP in 2022.
As Canadians look for solutions to address a stagnating economy and falling living standards, governments should recognize that taking a more active role in the economy won’t solve the problem—and will likely make it worse.
Authors:
From Resource Works
By Geoff Russ
The United States wants to break its reliance on China for minerals, giving Canada a distinct advantage.
Trade issues were top of mind when United States President Donald Trump landed in Kananaskis, Alberta, for the G7 Summit. As he was met by Prime Minister Mark Carney, Canada’s vast supply of critical minerals loomed large over a potential trade deal between North America’s two largest countries.
Although Trump’s appearance at the G7 Summit was cut short by the outbreak of open hostilities between Iran and Israel, the occasion still marked a turning point in commercial and economic relations between Canada and the U.S. Whether they worsen or improve remains to be seen, but given Trump’s strategy of breaking American dependence on China for critical minerals, Canada is in a favourable position.
Despite the president’s early exit, he and Prime Minister Carney signed an accord that pledged to strike a Canada-US trade deal within 30 days.
Canada’s minerals are a natural advantage during trade talks due to the rise in worldwide demand for them. Without the minerals that Canada can produce and export, it is impossible to power modern industries like defence, renewable energy, and electric vehicles (EV).
Nickel, gallium, germanium, cobalt, graphite, and tungsten can all be found in Canada, and the U.S. will need them to maintain its leadership in the fields of technology and economics.
The fallout from Trump’s tough talk on tariff policy and his musings about annexing Canada have only increased the importance of mineral security. The president’s plan extends beyond the economy and is vital for his strategy of protecting American geopolitical interests.
Currently, the U.S. remains dependent on China for rare earth minerals, and this is a major handicap due to their rivalry with Beijing. Canada has been named as a key partner and ally in addressing that strategic gap.
Canada currently holds 34 critical minerals, offering a crucial potential advantage to the U.S. and a strategic alternative to the near-monopoly currently held by the Chinese. The Ring of Fire, a vast region of northern Ontario, is a treasure trove of critical minerals and has long been discussed as a future powerhouse of Canadian mining.
Ontario’s provincial government is spearheading the region’s development and is moving fast with legislation intended to speed up and streamline that process. In Ottawa, there is agreement between the Liberal government and Conservative opposition that the Ring of Fire needs to be developed to bolster the Canadian economy and national trade strategies.
Whether Canada comes away from the negotiations with the US in a stronger or weaker place will depend on the federal government’s willingness to make hard choices. One of those will be ramping up development, which can just as easily excite local communities as it can upset them.
One of the great drags on the Canadian economy over the past decade has been the inability to finish projects in a timely manner, especially in the natural resource sector. There was no good reason for the Trans Mountain pipeline expansion to take over a decade to complete, and for new mines to still take nearly twice that amount of time to be completed.
Canada is already an energy powerhouse and can very easily turn itself into a superpower in that sector. With that should come the ambition to unlock our mineral potential to complement that. Whether it be energy, water, uranium, or minerals, Canada has everything it needs to become the democratic world’s supplier of choice in the modern economy.
Given that world trade is in flux and its future is uncertain, it is better for Canada to enter that future from a place of strength, not weakness. There is no other choice.
From the Fraser Institute
Myths, fallacies and ideological rhetoric continue to dominate the climate policy discussion, leading to costly and ineffective government policies,
according to a new study published today by the Fraser Institute, an independent, nonpartisan Canadian public policy think-tank.
“When considering climate policies, it’s important to understand what the science and analysis actually show instead of what the climate alarmists believe to be true,” said Kenneth P. Green, Fraser Institute senior fellow and author of Four Climate Fallacies.
The study dispels several myths about climate change and popular—but ineffective—emission reduction policies, specifically:
• Capitalism causes climate change: In fact, according to several environment/climate indices and the Fraser Institute’s annual Economic Freedom of the World Index, the more economically free a country is, the more effective it is at protecting its environment and combatting climate change.
• Even small-emitting countries can do their part to fight climate change: Even if Canada reduced its greenhouse gas emissions to zero, there would be
little to no measurable impact in global emissions, and it distracts people from the main drivers of emissions, which are China, India and the developing
world.
• Vehicle electrification will reduce climate risk and clean the air: Research has shown that while EVs can reduce GHG emissions when powered with
low-GHG energy, they often are not, and further, have offsetting environmental harms, reducing net environmental/climate benefits.
• Carbon capture and storage is a viable strategy to combat climate change: While effective at a small scale, the benefits of carbon capture and
storage to reduce global greenhouse gas emissions on a massive scale are limited and questionable.
“Citizens and their governments around the world need to be guided by scientific evidence when it comes to what climate policies make the most sense,” Green said.
“Unfortunately, the climate policy debate is too often dominated by myths, fallacies and false claims by activists and alarmists, with costly and ineffective results.”
Kenneth P. Green
Senior Fellow, Fraser Institute
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